News & Commentary

Molina Argues For ACA Tune-up

What Obamacare giveth, Obamacare taketh away. But it doesn’t have to be that way, argues J. Mario Molina, CEO of Molina Healthcare. The insurer serves mostly Medicaid beneficiaries, and that’s why it made a profit on the exchanges in the first couple of years.

The 4 million-member company was expected to rake in $16 billion by the end of 2016. “The thing that surprised us is that we actually exceeded our growth expectations,” Molina told The Hill in September 2016.

That was then. In February, Molina showed a net loss of $47 million in the fourth quarter of 2016 compared with a $30 million profit in the fourth quarter of 2015.

Molina told Kaiser Health News that the reversal is due to what he sees as a structural flaw in the ACA known as risk transfer. It’s one of the subsidies accorded insurance companies who wind up losing money for serving a sicker, poorer population. Except this subsidy doesn’t come from the government directly but from other insurers who don’t have as many sicker, poorer patients.

Molina likes the idea but says the formula used to carry it out is flawed. It punishes efficiency rather than helps companies that have had some bad luck in the risk pool.

“Let’s put it this way,” he told Kaiser. “Currently, Molina Healthcare is returning 25% of our premiums to the government, which are then distributed to our competitors. So we are really subsidizing our competitors and helping them, rather than forcing them to compete.”

Still, Molina said in the Kaiser interview that he is an ACA supporter, notwithstanding his company’s recent disappointing financial performance (although this was weeks before the House Republicans unveiled the American Health Care Act). Obamacare needs neither repealing nor replacing, just a tune-up, Molina said. Going against the grain of some large insurers (Aetna, UnitedHealthcare, and Humana) who’ve either exited or are planning to exit the ACA exchanges, Molina Healthcare intends to stay.

The Aetnas, Humanas, and UnitedHealthcares of the industry are used to creating extensive insurance benefit packages for large employers, Molina told Kaiser. Molina Healthcare has narrow physician networks and does not contract with every hospital in a region, and that has helped the company do well on the ACA exchanges.

Joshua Weisbrod, a health care consultant with Bain & Co., told Kaiser that it’s easier to work up from a low-cost position than it is to work down from a higher-cost one: “For an insurer that is used to selling employer plans with rich benefit designs and broad networks, it is difficult for them to transition that to a narrow network of lower-cost providers.”

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